John Hussman heads the investment advisory firm, Hussman Econometrics Advisors, which was founded by him in 2000. He manages Hussman Funds, which since inception has had a cumulative growth of 118%. A Ph. D., Dr. Hussman was previously a professor of economics and finance at University of Michigan. He looks at two aspects before investing-- valuation and market action. In this article I analyze his latest big buys from his SEC form 13F using valuation and market action techniques to see if investors should follow his picks.
Exxon Mobil (XOM) is the largest integrated oil and gas company in the world, with its origins dating back to over a century. Having recently completed a buyback of $16 billion worth of stock, which helped the stock price move up substantially, the EPS increased by 56% over the last 12 months, on the back of a major deal with the Russian oil and gas major Rosneft (OTC:RNFTF). This left its biggest competitor, British Petroleum (BP), even further in the dust.
Touching about $100 billion in capital expenditures, Exxon has the premier position with respect to meeting global demand particularly in the key markets of China and India. The stock is trading around the $74 mark with a price earnings multiple of under 9 times, a seriously cheap valuation for a stock like Exxon, which offers a return on equity of 27%, far above and beyond the industry average of just over 12%. At the end of Q3, 2011, John Hussman funds added new positions in Exxon of about 1 million shares in with an average buy price of a little over $79 per share.
St. Jude Medical Inc. (STJ) is a U.S.-based advanced medical equipment manufacturer with a serious emphasis on growing through inorganic means, which explains some of the biggest acquisitions in the recent past, including that of AGA medical. Strong sales resulted in its shares jumping over 5% in the last month itself. St. Jude has established itself as an international player with overseas revenues showing a growth of almost 25%, accounting for over half of total revenues.
New product launches are slated for 2012, including prosthetic valves which can be put in without the need for open heart surgery, and plans to move its production facilities to low cost regions such as Malaysia should further help St. Jude improve top line and increase operating margins. In spite of fluctuating foreign exchange prices, St. Jude recorded a year on year quarterly revenue growth of 11% and an operating margin of 25%, beating the industry averages of just about 3%. During quarter ended June 30 2011, John Hussman funds bought 1 million shares of St. Jude, with an average buy price of $50 per share, which is currently trading near the $37 mark.
Agilent Technologies Inc. (A) is a low risk rated (Governance Risk Indicator), global electronic measurement equipment manufacturer. A cash rich company, which generated $510 million of cash from operations and a net cash balance of $1.4 billion, Agilent posted a 13% jump in its orders from around the world. UBS just posted a buy rating for the stock, which is currently trading in the mid $30s, with price target of around mid $40s.
With a significant presence in many emerging markets such as China, India and Brazil, which by the way contributed in no small part to a quarterly revenue growth of 22% (year on year), the stock is trading at a price earnings multiples of just under 12 times with the industry at an average of around 15 times. An exceptional gross margin of 53% and cash per share of over $10 makes Agilent a sure bet. John Hussman funds initiated a buy position in 2008, buying 650,000 shares with an average buy price of $34 per share.
Coca-Cola Company (KO) is the world’s largest soft drink company with offerings of over a thousand drinks across nearly every major market. Originally Coca-Cola, which is now a household name in more than 200 countries, was invented for medicinal purposes and is now a $162 billion enterprise value company. Coca-Cola is trading at just over $65, near the top of the 52 week range of $71.77-$61.29. During Q3 2011, John Hussman funds added 250,000 shares of Coca-Cola with an average buy price of $68 per share.
A favored Warren Buffett stock, Coca-Cola has managed to gain 45% in year on year quarterly revenues in spite of slowing demand in developed markets, where it gained 5% across the board. Meanwhile Pepsi Co. (PEP), its closest competitor, lost volumes in the Americas division. Although in 2007 the stock went spiraling down to the levels of under $40, Coca-Cola has made a remarkable recovery in the last 5 years with a dividend growth rate of just under 10%. Compared to Pepsi Co., the EPS growth rate for Coca-Cola has been just under 20% (PEP at 10%) with an unmatched history of dividend payouts over last two decades.
With the Christmas and New Year approaching, the demand for toys and games is expected to rise and the stock to buy for the holiday season is Mattel Inc. (MAT). The world’s largest toy maker with a market capitalization of $9.67 billion, Mattel owns the iconic brands of Barbie, Hot Wheels and Monopoly in its portfolio. In collaboration with Stardoll, Mattel has recently announced virtual Barbie games and dolls. The bulk of its sales are in the United States, which contributes close to 60% to the total.
With 76% of analysts recommending buying the stock, Matell has already shown a growth of 9% in year on year quarterly revenues. Matell recently announced the acquisition of HIT entertainment, the owner of popular intellectual property toys such as Bob the Builder and Barney, thereby making an entry into the very lucrative and growing market of preschool toys. The stock is trading at under $30 near the low of the tight 52 week range of $29.70-$22.70. John Hussman funds added 1.1 million shares by end of Q3 2011, with an average price of $26 per share.